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According to the rationales of Ethiopian labour law the main purpose of severance pay to an employee is, to minimize any financial instability that may arise while the employee is searching for a new job due to termination of employment.
Fikadu Asfaw Law Office
24 March 2012
Is it mandatory to pay Provident fund and severance payment

According to the rationales of Ethiopian labour law the main purpose of severance pay to an employee is, to minimize any financial instability that may arise while the employee is searching for a new job due to termination of employment. It is obvious that the same principle also applies for provident funds. So, will it be fair to enforce an employer to pay for both severance pay and provident fund when it is known that they both serve the same objective.
The suit between the applicant Awash International Bank and defendant Ephrem Newaymariam was based up on the above issue. The suit initiated up on the claim of the defendant in the Federal First Instance Court. He stated that he was working in the applicants company for several years. But the contract of employment terminated up on the initiation of the employee. The applicant made all the necessary payments including provident funds. The complaint was that payment of severance pay was not made.
The court that entertained the case rejected the claim of the defendant stating that the defendant admitted to accepting provident funds as per proclamation 494/98 a person cannot ask for payment twice. The suit was appealed to the Federal High Court the court; accordingly the court rejected the decision of the lower court and ordered the applicant to pay severance pay for the employee.
The Cassation bench analyzed the arguments of both parties in light of the proper provisions of the law. It stated the appropriate provision for this particular case is art. 2(C) of proc.494/1998 which stipulates “a worker who had completed his probation shall have the right to get severance pay from the employer where he has no entitlement to a provident fund…..”.
What can easily be inferred from this provision is that an employer who gets his provident fund doesn’t have the right to claim for severance pay. If one tries to see the intentions of the legislator it is clear that the reason for prohibiting both payments at the same time from the same source is to protect unnecessary expenses by the employer.
So, the cassation bench decided on behalf of the applicant and denied the claim of the defendant for payment of severance pay. Thus it can be concluded that both severance pay and provident fund cannot be paid to an employee up on the termination of a contract of employment.